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Ben Bernanke: My Work is Done Here

Posted by Larry Doyle on June 19, 2013 4:29 PM |

I just listened to the release of the FOMC’s statement and juxtaposed that with the Q/A with Big Ben.

I detected some not so subtle differences in these deliveries, and clearly the market did as well.

The markets were remarkably stable after the initial release as the Fed stated that its policy remains unchanged and there was no hint of tapering asset purchases as has been the concern since that term was used by the Fed a month ago.

The statement had a mildly positive spin on the economy but nothing overly exuberant as to serve as a warning sign that the Fed might begin to pull in on the reins so to speak. In fact, the rate of inflation remains well below the long term target of 2% so that should actually allow greater leeway for the Fed to stay the course with its current policy.

Then the afternoon took a decidedly different turn of events.

The FOMC statement is a compendium of all the inputs provided by Fed governors.

Bernanke put his own stamp on today’s delivery during the Q/A when he indicated preemptively that the projection for unemployment approaching the 7% rate near year end would serve not as a trigger but a threshold for the Fed to take its foot off the quantitative easing pedal somewhat, if (and this is a big IF) inflation were to be approaching the 2% target. Markets for both stocks and bonds started heading south when Big Ben made that remark and ended near session lows.

There are a whole lot of BIG IFs involved in the scenario laid out in Bernanke’s remarks.

I personally think Bernanke is concerned that risk markets in general (equities, high yield bonds) have exceeded his hopes and expectations and without describing them as overly exuberant — as a prior Fed chair had done — I think he views them as frothy or bubble-like.

More than that, though, I personally think Bernanke is looking to make a public statement that, having taken our economy down the  unconventional road known as QE, he is now looking to set a timetable when we may begin to move off that path even if only so slightly.

In so many words, Bernanke can then close the book on his career as Fed chair, declare victory in regard to his own work, and state “my work here is done.”

None of this may actually come to pass. The flights and fancies of our economy in terms of growth, inflation, and market moves far exceed the ability of even the world’s most influential central banker to control, but today strikes me as more about Bernanke projecting the closing chapter on his own tenure so he can then turn the reins over to the next Fed chair.

What do others think?

Larry Doyle

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Yeah, he’s done enough damage.

  • Jim

    Hey Larry,

    I think good riddance…and for just one reason. Tell me what he received from Congress & the President re: responsible financial management for setting Fed Funds at ZERO% and slamming the Fed balance sheet to epic proportions?

    We’re so off the track it’s pathetic.

  • Joe

    Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest mutual fund, said investors who are selling Treasuries on expectations that the Federal Reserve will scale back its accommodative policy are missing the influence of inflation on the Fed’s decision.

    “The market basically has misinterpreted the growth and unemployment targets while leaving out the inflation targets going forward,” Gross said in an interview today on Bloomberg

  • Peter Scannell
  • Rajendra Joshi

    I totally agree with yor analysis. It is a bit surprising to see how markets reacted during Fed Chair’s speech and Gold plumetted! Is there any chance for the markets to really see the sense and pull back? Normally what I have observed is that this pulling back takes time and as the hours go by other factors influence the markets and Fed Chair’s speech effects are in the background or become irrerelevant.

  • Rudy

    My thoughts are similar to yours and I think he does not want to be known as the guy who turned on the spigot and left it running.

    He wants to start the process of turning it off before he is gone. The market has gone from prepayment protection risk to limited extension risk.

    The assumption of easy money is no longer with us so now PM’s have to focus on how to make money in a rising yield environment where floating rate paper does not pay any spread, hence, limited extension risk.

    Keep ‘em coming, I love your thoughts.

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